Matrixx ups takeover bid of ProPhase to $1.60 per share

By Michael Johnsen

SKILLMAN, N.J. — Matrixx Initiatives on Tuesday announced its second overture to ProPhase Labs with an increased acquisition offer of $1.60 per share. The revised offer represents a premium of 51.7% over the 30-day average closing price of ProPhase's stock and a 53.7% premium to ProPhase's average closing price over the 12 months preceding Sept. 6 — the day ProPhase's former chairman and CEO, Guy Quigley, filed a Schedule 13D announcing Matrixx's purchase of a three-year option to acquire 1.45 million shares of ProPhase common stock.

On Sept. 4, Matrixx purchased for $200,000 a three-year option to acquire the shares for $1.40 per share from Quigley. Matrixx also acquired from Quigley a voting proxy to vote the shares subject to the option.

Matrixx initially had proposed an all-cash acquisition of ProPhase for $1.40 per share on May 29.

The danger in entertaining such a proposal, ProPhase announced in September, is that it makes nonpubilc, competitive information available to a direct competitor as a pre-condition to the sale. Both Matrixx and ProPhase field the two best known zinc gluconate brands — Zicam and Cold-Eeze, respectively.

ProPhase also stated that Matrixx had undervalued the company at $1.40 per share. "It is the current shareholders of ProPhase, not the private equity owners of one of our primary competitors, who should benefit from the future potential created by our current strategies," ProPhase chairman and CEO Ted Karkus said in the Sept. 17 statement. "We preserved the Cold-Eeze brand, then we repositioned the brand and now we are successfully growing and leveraging the brand."

Regarding its revised offer, Matrixx CEO Marylou Arnett said, "We believe our revised all-cash offer is highly attractive to ProPhase shareholders and we hope to commence discussions with ProPhase at the earliest opportunity. Our offer is especially attractive when considering that we believe ProPhase faces significant challenges by remaining as a standalone entity, including lack of scale, an unsustainable financial model and limited liquidity. We continue to believe that a combination of ProPhase and Matrixx presents an exciting opportunity for our respective employees, business partners and other constituencies while delivering significant and certain value to ProPhase shareholders."

In a letter to ProPhase, Matrixx stated: "We believe this revised all-cash offer, which is not contingent on financing, is highly attractive to the company's shareholders, as it provides them with compelling upfront and certain value relative to a difficult, uncertain and highly speculative multiyear turnaround program you have recently outlined. In fact, we believe that ProPhase faces significant challenges by remaining a standalone entity."